Tony Blair promised more cash for Britain's armed forces today as he defended his policy of intervention in countries such as Iraq and Afghanistan.

The prime minister pledged to increase government spending on equipment, personnel and living conditions as he embarked on a "hearts-and-minds battle" to convince the country that Britain should remain a major defence power.

In a keynote defence lecture Mr Blair argued that there were two types of nations: "Those who do war fighting and peacekeeping and those who have, effectively, except in the most exceptional circumstances, retreated to the peacekeeping alone."

Mr Blair, speaking on board HMS Albion in Plymouth, added: "Britain does both. We should stay that way."

The speech comes just a day after the US announced it was sending more than 20,000 extra troops to Iraq.

The foreign secretary, Margaret Beckett, welcomed the move but insisted that the UK had no current plans to follow suit.

Britain has said that it will withdraw "thousands" of troops from Iraq in the coming months, amid claims that the armed services are being "overstretched" by fighting two campaigns, in Iraq and Afghanistan.

In November, a National Audit Office report warned that the UK's armed forces were 5,170 under strength and had been operating at or above planned-for levels since 2001.

It said that the strain of fighting in Iraq and Afghanistan at the same time was one reason for shortages.

The Ministry of Defence acknowledged "additional strains" on staff, but denied forces were overstretched.

Mr Blair said: "It is true that operation commitments are at a higher level than originally planned. Service personnel are working harder and for longer than intended."

The premier admitted that service housing had become a "prominent issue".

"We know there are real problems," he said. But Mr Blair argued that much of what had been written about soldiers' families living in squalor "distorts the truth or greatly embellishes it".

Mr Blair warned that, following the September 11 attacks on New York in 2001, Britain faced an enemy akin to "revolutionary communism in its early and most militant phase".

"A world-wide movement, with an ideology based on a misreading of Islam... Its belief system may be utterly reactionary, but its methods are terrifyingly modern," he said.

Mr Blair warned that the battle to defeat this new threat would be long.

"It has taken a generation for the enemy to grow. It will, in all probability take a generation to defeat."

Mr Blair said his choice for Britain's armed forces was for them to prepare to engage in a "difficult, tough, challenging campaign".

"To be war-fighters as well as peacekeepers."

To make that choice, it was important that the covenant between the armed forces, the government and people was renewed.

"For our part, in government, it will mean increased expenditure on equipment, personnel and the conditions of our armed forces, not in the short run but for the long term," Mr Blair said.

"On the part of the military, they need to accept that in a volunteer armed force, conflict and therefore casualty may be part of what they are called upon to face.

"On the part of the public, they need to be prepared for the long as well as the short campaign, to see our participation alongside allies ... as a necessary engagement in order for us to protect our security and advance our interests and values in the modern world." Mr Blair concluded by saying that the world had changed and we had to change with it.

"I have set out the choice I believe we should make. I look forward to the debate," he said.

Earlier, Mr Blair was warned that Britain could not afford to be a "mini-America", intervening around the world

Lord Garden, a former assistant chief of defence staff now a Liberal Democrat defence spokesman, said that the country would have to divert a higher proportion of national income to defence if it wanted to sustain the current level of operations over the long term.

"If you want to be able to do everything, be a mini-America, so you can do high-intensity conflict, go everywhere where there are international problems, you really need to scale up by quite a large amount," he told the BBC Radio 4 Today programme.

"I don't think that we can afford to. America is spending half a trillion dollars a year, 10 times what we spend. They spend more on research than we spend on defence."

Lord Garden accused Mr Blair of trying to pre-empt the chancellor, Gordon Brown, who is expected to succeed him when he steps down as prime minister later this year.

"What he is trying to do is make sure he ties the hands of his successor, Gordon Brown, who has rather different views about Britain's role in the world," he said.

Clare Short, the former international development secretary who quit the Labour party whip to sit as an independent, dismissed the prime minister's speech.

"Blair is delusional. His role has made the world much more dangerous, much more divided, diminished international law, diminished the prospects of the world cooperating in international humanitarian interventions," she told BBC Radio 4's The World At One.

The chairman of the Commons Defence Select Committee, Tory MP James Arbuthnot, gave the speech an "unreserved welcome".

"The prime ninister is recognising both the strain under which the armed forces are operating and the steps needed to put it right," he said.

"What is essential is that the chancellor should now, immediately, endorse what the prime minister is saying."